The Unassuming Economist

A new IMF working paper finds that “employment protection legislations and large productivity differentials are the key drivers of Korea’s duality. […] well-calibrated flexicurity policies can significantly reduce duality and inequality and raise welfare and productivity. Notably, the introduction of all three pillars—flexibility, a strong safety net and active labor market policies—is critical for its success. If only one pillar is introduced it can result in negative side-effects and might not reduce duality.”

From a new paper by Jonathan Ostry:

“Ongoing work suggests several urgent priorities that seem likely to pay dividends in the form of inclusive growth. Public policies should provide income support for workers displaced by technological change or trade, as well as incentives and opportunities to learn new skills. Fiscal policies should safeguard the political legitimacy of the growth model by ensuring that regulations are not skewed in favor of the wealthy; steps could include increased taxation of rents and estates and cooperative efforts across jurisdictions to stem corporate tax avoidance, tax inversions, and the use of tax shelters. Authorities should also make more aggressive efforts to regulate financial markets to prevent insider trading and money laundering and ensure that regulations prevent unfair competition and crony capitalism, whether in industry, services, or even the media.”

“The task of policymakers is to ensure that the disadvantaged also have the opportunity to succeed in the modern, hyperglobalized economy, by designing reforms and globalization with an eye to their distributional effects. If they fail, progrowth reforms will lose political legitimacy, enabling destructive nationalist, nativist, and protectionist forces to gain further traction and undermine sustainable growth. The key to success will be to take preemptive action, rather than focusing solely, or even primarily, on ameliorative measures after the fact. Inclusive globalization need not be the same as unbridled globalization.”

A new IMF working paper “explores regional differences to shed light on drivers of participation rates at the state and metropolitan area levels. It documents a broad-based decline, especially pronounced outside metropolitan areas. […] it finds that metropolitan areas with higher exposures to routinization and offshoring experienced larger drops in participation in 2000-2016. Thus, areas with different occupational mixes can experience divergent labor market trajectories as a result of trade and technology.”

In a recent paper on labor mobility in the United States, Mai Dao, Davide Furceri and I show that the ability to migrate is not as immediate as previously supposed and has been weakening since the early 1990s. We also find that net mobility across states picks up during national recessions, this increase is driven more by a stronger population inflow into states that are doing better rather than stronger population outflow from states that are doing worse; the outflow occurs only toward the end of the recession.

See my previous post here and my paper here.

A new survey paper “takes stock of the literature on the relationship between central bank policies and
inequality.” It also notes the findings in my paper with Davide Furceri and Aleksandra Zdzienicka:

“Furceri et al. (2018) find that the effect of monetary policy shocks on income inequality is larger in countries with higher labour income shares in total income.”

“The impact of monetary policy shocks on inequality may vary over the business cycle. Furceri et al. (2018) find that contractionary monetary policy has stronger effects on income inequality during booms, while expansionary shocks have larger dis-equalizing effects during recessions.”

My paper is available here. For those who do not have access, the working paper version is available here.

From a new World Bank working paper:

“Most manufacturing activities use inputs from the financial and business services sectors. But these services sectors also compete for resources with manufacturing activities, provoking concerns about de-industrialization—inancial services in industrial countries like the United States and the United Kingdom, and business services in developing countries like India and the Philippines. This paper examines the implications of services development for the export performance of manufacturing sectors. It develops a methodology to quantify the indirect role of services in international trade in goods and constructs new measures of revealed comparative advantage based on domestic value added in gross exports. The paper shows that the development of financial and business services enhances the revealed comparative advantage of manufacturing sectors that use these services intensively but not that of other manufacturing sectors. It also finds that a country can partially overcome the handicap of an underdeveloped domestic services sector by relying more on imported services inputs. Thus, lower services trade barriers in developing countries can help to promote their manufacturing exports.”